Start with the file simplified_markov.ipynb
This file has two primary functions:
- Create the transition states using binary encoding 000 for example would mean the market was down-down-down in the last three bars.
- Analyze transition matrix to evaluate what the probability of the current candle being up or down is based on the previous chained states.
The final cell just plots a hypothetical backtest if you were to long or short everytime the state showed up.